The accumulation of decisions
Ben Thompson calls culture the accumulation of decisions.
Assume that it’s true.
How do decisions at a tech startup come into being in the first place?
A startup can be instantiated with the business plan.
And if you take a Beinhocker (2006, The Origin of Wealth) approach to it, you may believe that there’s a Library of Smith which contains every single business plan that’s possible. There are trillions upon trillions of potential business plans. And management is pretty much reduced to a machine that is able to execute the plan to generate wealth. Everything that has potential is possible at the beginning and assume competent management. (Image related – a bit esoteric*).
In the context of a startup, a business plan is the plan for the startup to become a business.
A startup isn’t a business. A startup is a hypothesis looking for validation to become a business. A startup hasn’t earned the right to call itself a business until the hypothesis is validated.
The business plan is literally a plan to become a business.
Think about all the elements in a good business plan.
There’s an entire section on the customer. In the Canadian Business Development Bank’s format, you’re asked for a target customer segment. You’re asked about competitors, price, and competitive advantage. There are sections on research and development, lease, equipment, policies and key employees.
Then there’s a whole section dedicated to spreadsheet fantasy, where you start off with revenue and work out the COGS and expenses all the way down.
You’re also asked about what value you bring to your target customer, which really the whole point. In the Aulet framework, you’re expected to chart a customer journey, from awareness to endorsement.
There are a lot of elements in a plan.
And those elements constitute decisions.
And a founder may be jammed into a specific market segment because they’re fueled by interest alone. Or they may be motivated by the search of matching a problem with a solution (or a product with a problem, depending on how you see it). Or they may be only about maximizing their own returns (and maybe their investors, who knows?).
The founders stance, what’s at their core, to some degree creates some path dependence of the choices within the business plan. Some founders are just never going to build car insurance price optimization API’s because that’s not what they’re about. Other founders are never going to set up a company dedicated to defrauding society and flouting local democracy. Still others are never going to a professional services company. Stances matter.
Regardless of how certain a founder pretends to be (or has genuinely fooled they are) that a product-market-problem fit exists, it’s truly just a hypothesis. Founders are not supposed to express doubt. They’re only allowed to express confidence and optimism. Deep down inside they’re terrified though. And if you can’t deduce some discomfort, there’s something else going on in there.
I’d like to believe that there’s a lot of discipline in hammering out a business plan. The customer is thought about. How they discover the product is fleshed out. The offering is backed out from their needs and wants, and then marketing is added to the mix. And then all sorts of scenarios are considered, explored, heuristics enunciated and policies documented.
Planning isn’t considered to be doing by some. And if you decide that planning isn’t a form of doing, and you privilege action (as we all do), then you’re deciding not to plan.
That there is a decision. And that has an impact on the culture.
The creation of the startup by the founder or founding team themselves, during the the business plan formation, has a massive impact on what happens subsequently.
How do decisions at a tech startup come into being in the second place?
A pivot is a decision.
It typically means “oh no, the market segment wasn’t as big as we thought, something is wrong, we need to do something else right now fast oh no”.
For a decision to pivot to occur, there has to be some opinion (regardless if it’s true) that something isn’t working, and that something fundamental about the product-market-problem set.
This is where I diverge from Beinhocker a bit.
The management team is able to rewrite its own business plan in response to feelings or, maybe, data. They’re able to evolve their understanding to be able to discover a business plan from the library of smith that actually works.
A pivot doesn’t mean that the founder is learning. The number of management teams that can’t focus on a hypothesis for 90 days is quite high. And often, learning means acknowledging that something was amiss or just plain wrong.
Did the founder(s) decide that it was acceptable to be wrong? And if so, what is the policy on failure?
All a pivot really means is that decisions are made to alter the business plan.
Social debt and Culture
Founders are called upon to make dozens of decision a day. To expect that a policy exists to guide each decision is ridiculous. And overkill.
Communicating a stance, and having a system of thought or reasons for that stance, can make a lot of those decisions better.
Typically a stance can be picked up in a business plan, hiring plan, and in all of the artifacts that the business produces. If you want to understand a firm’s culture, take a walk through their offices and see the accumulation of decisions around you.
Just as technical debt can grow over time, every startup is subject to the accumulation of social debt. Decisions made early on can have an accumulation effect on the firm. These can manifest themselves in all sorts of ways that surprise and often hurt a founder deeply.
Suppose a startup has just begun hypergrowth. It has a management team of four, twelve engineers, two dev ops, nine customer success assets, and they just hired its fifth sales director. So the sales director books their own travel to Chicago to meet with a prospect, and they spend $3,000 on a hotel.
Several months later the expense report line item is shown to the management team and somebody asks why sales expenses are so high. The offending sales director is identified and fingers point. One of the founders suggests that HR writes a travel policy and get have an approval layer to make sure such an obscene expense doesn’t happen again.
That’s pretty much how you’d expect a large business to operate towards its employees. Decide on a process that shields the business from questionable judgement? Right?
I’ll point out that if you can’t trust a sales director with the corporate credit card to exercise good judgement, how could you trust a sales director with making promises to customers that the business can’t possibly keep? It’s a good idea that there’s a deal desk to make sure that never happens, right?
Pretty soon you’ve taken on all the administrative debt of a massive corporation with a fraction of the revenue to support it. Great job!
Or, of course, the founders can chose to make different decisions and to have a different culture. They could choose to understand what was happening in Chicago during the week they were there. If there was a convention perhaps? And if the cost was in Canadian dollars. And the proximity to the clients? Maybe B2B travel expenses are accounted for in the budget appropriately? And maybe it’s understood that if you get a gray-hair sales executive that they’re not accustomed to taking the train in from Midway Airport, and they’re going to stay at a moderately priced Kindgon hotel for the week? And, if these parameters are not acceptable to the prospective hire, that, I don’t know, maybe you don’t hire people who won’t want to slum it?
The broader point of this strangely specific rant is that if one spent as much time planning technical debt as they did social debt, so many startups would remain viable and just be better, longer.
You’d have a lot more founders happier with the cultures that emerged from their stance, too. Possibly.
There’ll be plenty of time for the acquiring firm to totally screw up the culture you created, don’t worry about that. They’ll screw things up sure enough. They always do.
But while it’s your startup, while it’s the culture you’re setting, so at least be deliberate about it.
*(That’s an image of a 30b subunit from a ribosome – one of the most amazing machines ever. If only all management teams were as effective as the ribosome in executing eh?)